Exchange Rates and Foreign Direct Investment: an Imperfect Capital Markets Approach
36 Pages Posted: 23 Apr 2004 Last revised: 19 Dec 2022
Date Written: March 1989
We examine the connection between exchange rates and foreign direct investment that arises when globally integrated capital markets are subject to informational imperfections. These imperfections cause external financing to be more expensive than internal financing, so that changes in wealth translate into changes in the demand for direct investment. By systematically lowering the relative wealth of domestic agents, a depreciation of the domestic currency can lead to foreign acquisitions of certain domestic assets. we develop a simple model of this phenomenon and test for its relevance in determining international capital flows.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
The Real Exchange Rate and Foreign Direct Investment in the United States: Relative Wealth vs. Relative Wage Effects
Estimating Trade Equations from Aggregate Bilateral Data
Japanese Foreign Direct Investment
Foreign Direct Investment in the World Economy
Japanese Foreign Direct Investment and Regional Trade
By Tamim Bayoumi and Gabrielle Lipworth
A Non-Linear Currency Substitution Model of Hysteresis in Debt and Competitiveness
Research Issues in Japanese Foreign Direct Investment
Foreign Exchange and Cross-Border Valuation